All Forum Posts by: Prithvi Sri

I have several investment properties in Brentwood, CA. I have a strong line of credit that gives me access to money that I can use to build a 20+ unit multi-family complex without having to worry about financing. I am looking for a broker/advisor who can help me (i) find a suitable land parcel and (ii) guide me with permits, etc and (iii) have prior experience of connecting with sub-contractors/contractors. 

Do you think there will be a broker who will help me with all these services or should I be hiring different individuals for each of the services? I have not done any development in the past, but I am interested to do it. I want to progress from simply being a landlord to single family homes. And I think there is a lot of value to be created if we build new construction instead of just taking over existing properties.

There a builder/general contractor who proposed rehabbing a half done project in LA area. The property is in a short sale (and the builder has a contract for this, and the lender is currently reviewing it). It looks like the lender will accept the short sale. Matter of when and not if.

The property costs around 1.9M and builder expects 700k spend to complete the project. Six months to get approvals and stuff, and six months to complete the project. Investor (myself) puts 500k down payment and holds the title to the property. Rest of the money is borrowed (hard money at 12% - that is 1900+700 - 500 = 2.1M). Once completed, the property can be sold for 3.5M based on comps (may be more than 4.0 but 3.7 is conservative). 

Builder suggests I take 150k after all the expenses and split the remaining profit (3.5 Million sale price - 170k sales commissions = 3.33M. Less 1.9M purchase price, 700k improvements, and 250k in interest results in 2.85 total costs and approx 500k net profit). My question is, what should be the rate of split for the net profit? I want this to be fair for the builder as well as for myself. 

P.S.: The builder has zero money invested into the project. I will be owning the title and the loan is non-recourse so if the project goes to dogs, I lose all my money. Builder gets paid for the improvements as part of construction loan.

I have a national chain tenant with two year lease still remaining. Tenant wants to leave early as they aren't able to make profits as expected, and giving me an option to find a different tenant and cut them loose. I feel this is a blessing in disguise - I can try finding a tenant while the current tenant is still in place and have a relatively long timeline to do it right. So my questions.

1. What should I expect in terms of buyout payment from the tenant for terminating a lease two years early - one year lease or more or less?

2. What kind of a broker should I hire to find restaurant tenants? I have purchased the current property with the lease so I am relatively new to the leasing process. Any guidance is appreciated.

3. What kind of brokerage commission am I expected to pay for the broker finding the tenant?

4. What kind of tenant improvements allowance and buildout time - realistic - in this market?

Any other guidance is appreciated as well. Thanks in advance.

 Joel,

Who doesn't like high UPSIDE and lower risk deals? We all do. The question is, where do we find them? In buying a readmade property and being a landlord, there is little to no value generated so making a killing is just a fluke, even if one is able to do. To make money consistently, adding value is the only way. Other than buying land, what other avenues do you suggest?

I came across a national chain restaurant for close to 3M. The CAP rateis about 7.25 and has about 10 years of lease remaining. The Cap rate becomes 8% on purchase price in two years due to price escalation. From a return perspective, this all seems dandy but the sales are low for the rent they are collecting. The rent is around 11.25% of sales right now, and with increased rent in two years, if the sales don't improve, the rent to sales will be 12.5%. This seems very high for casual dining segment and my worry is, at the end of 10 years, either the tenant will leave or renegotiate the rent. There's always the possibility that the inflation will save the day by racking up the sales even though foot prints don't change.

What would your advice be for this? Is this worth investing? 

There is a property of 8 acres costing around 3.5M (approx 10$ or less per sqft for the raw land). I am pitched by the developer that if we can get the approvals for 180k sft area warehouse on the plot (the land cost then would be approx 24$ per sqft of constructed area) , we can sell the approved plans for approx 40$ per sqft.  Is this a reasonable assumption? Will a builder pay 40$ for something that cost only 24$ but without approvals? How long does it take to get the whole project (of getting approved plans)? 

All the comments about pandemic years being good - well, no ****. Pandemic years also saw a ton of money floating around. If there is something opposite of recession, that's what we experienced during covid  - last two years. People had no way to spend money and there was a ton of money being injected into economy and created through stock and crypto market expansion. 

I don't think there will be doomsday ahead but expecting what went on the past two years will be anything like the next two is simply not true.

 Thank you Dave! The only challenge is, the contract explicitly forbids assignment so I don’t think I can sell the contract. 

Thank you for the response Bill. 

The thing is, I had every intent to rent from the get go. In fact, when I posted a Zillow ad a couple of weeks ago about this upcoming property, the kind of applications that I got were not what tenants of 600k property would like. For 380k, probably yes. Also, When I signed contract for this property, I signed another one in the same neighborhood. I got possession of the other one a month ago, and I found it difficult to find quality tenants but eventually I did and rented it. Since I have contracts on two other properties in Peoria, both of them being rental, wouldn’t all the circumstantial evidence matter that my intent always has been to rent the property but I’m selling it because of my outlook on the local market changed? I’m sure decisions change based on circumstances but the original intent to buy this for rent shouldn’t be a question considering all the factors (non resident of the state of AZ, signed contracts for multiple residential properties in a short time all for rental purposes, already rented one in the state of AZ, very established residential rental ownership of multiple properties over 20 years in CA, etc).

Btw, the concern with holding it for a year of renting is, the market may crash in that period, at least in this sub-market, and the tax savings may not be worth the losses. At least that’s what I think. Otherwise, it would’ve been a slam dunk.